U.S. Tax considerations for Foreign Non-Residents.

1. Resident Alien of the U.S. for Tax Purposes

Under the Internal Revenue Code, an individual is a resident alien of the U.S. for tax purposes
if they meet either the green card test or the substantial presence test for the calendar year (January
1 – December 31).

To meet the substantial presence test, an individual must be physically present in the U.S. on
at least:
1. 31 days during the current year, and
2. 183 days during the 3-year period that includes the current year and the 2 years immediately
before that, counting:

  • All the days you were present in the current year, and
  • 1/3 of the days you were present in the first year before the current year, and
  • 1/6 of the days you were present in the second year before the current year.

EPGD Law suggest that you consult with an accountant to properly claim any available tax credits when preparing your U.S. tax returns. If you need a referral to a reputable accountant, we are here to help.

2. Expatriation Tax (Exit Tax)

The expatriation tax provisions, also known as the exit tax provisions, under the Internal Revenue Code apply to 1) U.S. citizens who have renounced their citizenship, and 2) long-term residents who have ended their U.S. resident status for federal tax purposes who meet any of the
following requirements:

  • Average annual net income tax for the 5 years ending before the date of expatriation or
    termination of residency of more than a specified amount that is adjusted for inflation
    ($155,000 for 2013, $157,000 for 2014, $160,000 for 2015, $161,00 for 2016, and
    $162,000 for 2017);
  • Net worth of $2 million or more on the date of expatriation or termination of residency
    (This is the aggregate net value of worldwide assets, not just U.S. assets.); or
  • Failure to certify with all U.S. federal tax obligations for the 5 years preceding the date of
    expatriation or termination of residency on Form 8854.

For a U.S. citizen, the expatriation date is the earliest of:

  • When the taxpayer renounces citizenship before a diplomatic or consular officer of the
    U.S.;
  • When a signed statement of voluntary relinquishment of U.S. nationality is furnished to
    the State Department that confirms the performance of an expatriate act;
  • The date that the State Department issues a certificate of loss of nationality; or
  • The date that a U.S. court cancels a certificate of naturalization.

A long-term resident terminates their residency status on the earliest of:

  • The filing of Form I-407, Abandonment of Lawful Permanent Resident Status, with a U.S.
    consular or immigration officer;
  • The date the resident leaves the U.S. because of a final administrative order for his removal
    under the Immigration and Nationality Act; or
  • The date a dual resident chooses to be treated as a resident of another country under a tax
    treaty between that country and the U.S., and the resident filed Form 8833, Treaty-Based
    Return Position Disclosure Under Section 6114 or 7701(b) and Form 8854 with the IRS.

 

    a. Expatriation Tax Calculation

The expatriation tax is computed as if you sold all your assets on the day before you expatriated
and had to report the gain. Currently, net capital gains can be taxed as high as 23.8%.

 

    b. Definition of Long-Term Resident

A “long-term resident” is any individual who has held a green card for at least 8 out of the 15
years prior to the expatriation date of their resident status. The E-2 visa is a non-immigrant visa.
Accordingly, the E-2 visa does not provide an individual with a direct pathway to permanent
residency (a green card), and E-2 visa holders are considered non-residents of the United States.

The considerations mentioned above are only a small part of the various options for Foreign Non-Residents during tax season. If you have any concerns regarding anything we’ve discussed, we’re here to help. Our experienced staff of attorneys is available for appointments. To arrange a consultation, we may be reached at (786) 837-6787 or info@epgdlaw.com.

*Disclaimer: This blog post is not intended to be legal advice. We highly recommend speaking to an attorney if you have any legal concerns. Contacting us through our website does not establish an attorney-client relationship.*